Governor Charlie Baker last week signed a clean-energy bill and new rules governing the use of non-compete agreements, but vetoed a “patent-trolling” provision that could have prevented companies from protecting their intellectual property.

The energy bill was among 53 pieces of legislation passed in the waning hours of the formal legislative session that Baker signed on Thursday. His actions on non-competes and patent-trolling, both of which were part of a $1.2 billion economic development bill, came on Friday.

AIM supported the energy measure and the compromise bill on non-competes but opposed the patent-trolling language.

“We are grateful to Governor Baker for thoughtful decisions that will benefit both the business community and the larger community,” said Richard C. Lord, President and Chief Executive Officer of Associated Industries of Massachusetts.

AIM had urged Baker to strike the problematic patent-trolling language from the economic development bill.

“The patent-trolling language contained in the bill pending before you is materially different from the compromise language approved by the Joint Committee on Consumer Protection and Professional Licensure committee (S.2432),” Lord wrote to Baker early last week.

“The changed language appeared within the final days of the legislative session and has raised significant concerns from employers who believe it may limit the ability of companies to protect intellectual property.”

AIM supported other portions of the economic-development bill ranging from an apprenticeship tax credit to changes to the Economic Development Incentive Program.

The non-compete language signed by Baker mirrors an agreement that AIM and other business groups reached two years ago with House Speaker Robert DeLeo. The measure limits non-competes to one year and gives employees the opportunity to consult a lawyer when signing a non-compete but does not require companies that compensate employees at the time they sign non-competes to pay them again during the restricted period.

The new energy bill authorizes an additional procurement of offshore wind power, increases the renewable portfolio standard that governs the amount of clean energy utilities must purchase, and establishes an energy storage target. The renewable portfolio standard will increase by one percent until the end of 2019, then by two percent each year until the end of 2029. It would then set the state on a track of one-percent increases each year thereafter.

The Massachusetts Legislature ended its 2017-2018 formal session last night by mandating increased use of clean energy, establishing limits on the use of non-compete agreements and curbing the practice of “patent trolling.”

Lawmakers meanwhile were unable to reach agreement on a massive health-care bill that had generated concern among employers because it leveled assessments on medical providers and insurers that would eventually be passed on to consumers. The bill also contained no reform of the MassHealth program even as employers contribute $200 million per year to close a budget gap in the health-insurance program for low-income people.

Beacon Hill lawmakers crossed the finish line early this morning after a frenetic day that saw passage of bills covering everything from economic development to opioid care.

Governor Charlie Baker now has 10 days to review all the legislation. AIM will consult with member employers on the issues before recommending that the governor sign or veto each measure.

The new energy law authorizes an additional procurement of offshore wind power, increases the renewable portfolio standard that governs the amount of clean energy utilities must purchase, and establishes an energy storage target.

The compromise calls for the renewable portfolio standard to increase by one percent until the end of 2019, then by two percent each year until the end of 2029. It would then set the state on a track of one-percent increases each year thereafter.

Associated Industries of Massachusetts had supported a measured approach that would neither harm ratepayers nor elbow out other zero-carbon generation such as hydro-electric power. AIM supports the final bill.

“H.4857 An Act to Advance Clean Energy constructively builds upon the success of last year’s omnibus energy legislation,” said Robert Rio, Senior Vice President of Government Affairs at AIM.

“By following this measured approach, Massachusetts avoids disrupting the energy sector by making significant changes to programs that are themselves in the middle of being finalized. AIM feared that course would have delayed our effectiveness in meeting our greenhouse gas reduction goals.

“The measure will continue our aggressive transition from fossil fuels to a zero-carbon future while at the same time recognizing the importance of cost on Massachusetts ratepayers.”

The law governing use of non-competes, included in an economic development bill, mirrors a compromise that AIM and other business groups reached two years ago with House Speaker Robert DeLeo. The measure limits non-competes to one year and gives employees the opportunity to consult a lawyer when signing a non-compete but does not require companies that compensate employees at the time they sign non-competes to pay them again during the restricted period.

“AIM has fought relentlessly for more than 11 years on behalf the vast majority of Massachusetts employers who wish to preserve the use of non-competes to protect intellectual property. The new bill accomplishes that goal and reflects the productive compromise brokered two years ago by the speaker,” said Brad MacDougall, Vice President of Government Affairs.

The economic development bill also contains a provision to limit the practice of patent trolling, in which third parties demand financial settlements for alleged infringement on patents they do not even own. AIM maintains concerns about the language of the provision because some employers may be unable to engage in legitimate protection of their intellectual property amid an avalanche of state litigation.

“The language of the bill is materially different from the compromise language previously approved by the Joint Committee on Consumer Protection and Professional Licensure,” MacDougall said.

“This is an important and legally complex issue, one that should be addressed by federal law. However, given Congress’ failure to act, if Massachusetts is to establish a policy, we need to get right for our AIM members who are victims of patent trolls and patent holders.”

The demise of the health-care bill turned on differing approaches by the House and Senate to capitalizing community hospitals.

House Majority Leader Ronald Mariano told the State House News Service early this morning, "We were just too far apart philosophically to a come to a resolution that fit our agenda."

The Quincy Democrat said the House was focused on trying to find a way to financially stabilize community hospitals in the short-term with assessments on insurers and large hospitals, while he said the Senate "wanted a market driven approach." "We just thought we couldn't wait," Mariano said.

Katie Holahan, Vice President of Government Affairs at AIM, said, the lack of agreement on health care reflects the enormous complexity of the issue. She said AIM and its employer-members will continue to work with the Legislature to find ways to moderate the cost that companies face in providing health coverage for employees.

“While final action was not taken on major health-care legislation, we remain gravely concerned that – without long-term reform to MassHealth and the commercial market – Massachusetts’ health-care costs will continue to increase unchecked. Until reform is achieved, no relief is in sight for employers and their workers seeking to access care at a reasonable cost,” Holahan said.

The conclusion of formal sessions on July 31 of even-numbered years generally means the end of the line for controversial bills. Lawmakers will meet for the remainder of 2018 in informal sessions, when a single lawmaker may stop any measure with an objection.

Beacon Hill lawmakers will complete their version of final-exam week Tuesday at midnight as the Legislature races to complete bills before the end of formal meetings for 2017-2018 Beacon Hill session.

The conclusion of formal sessions on July 31 of even-numbered years generally means the end of the line for controversial bills. Lawmakers will meet for the remainder of 2018 in informal sessions, when a single lawmaker may stop any measure with an objection.

The most important issues to employers have already been resolved in advance of this year’s end-of-session rush. The Massachusetts Supreme Judicial Court last month invalidated a potential income-tax surcharge constitutional amendment, while negotiations over three other ballot questions produced agreement on a compromise paid family and medical leave law, as well as a minimum-wage increase.

Three key employer issues remain on the table during the waning hours of debate:

Health care reform – The House and Senate passed different versions of health reform and a conference committee is working to hammer out a consensus bill. AIM remains concerned about both bills because they include expensive assessment. Neither bill reforms the MassHealth program for low income residents, where employers are paying a $200 million assessment to close a funding gap.

Energy – Measures passed by both the House and Senate could significantly increase the percentage of clean-source electricity used by Massachusetts consumers. AIM believes the bills could have the perverse effect of squeezing out clean hydro power and interrupting the successful roll-out of the 2016 energy law.

Non-compete agreements – The Senate, as part of an economic development bill, largely adopted the same modest restrictions on non-competes that AIM and other business groups supported two years ago as part of a compromise with House Speaker Robert DeLeo. But deep-pocketed venture capitalists continue to press for an outright ban and prospects for passage remain uncertain.

Employers also received some good news last week when Governor Charlie Baker signed the budget for the fiscal year that began July 1. The budget authorizes the administration to develop a hardship waiver for employers liable for the MassHealth surtax. Details remain to be developed.

The budget also provided full funding for the Massachusetts Manufacturing Extension Partnership.

Please contact me at 617.262.1180, or jregan@aimnet.org if you need more information on any of these issues.

Associated Industries of Massachusetts weighed in yesterday on 73 bills pending before a key legislative committee considering employment-law issues ranging from independent contractors to the use of non-compete agreements.

Among the measures that employers support are bills streamlining the complex definition of an independent contractor and compromise limitations on non-compete agreements that recognize the fact that employers often compensate workers for signing such agreements.

AIM opposes bills that would establish paid family and medical leave, increase the minimum wage, and impose vicarious liability for wage violations on any company that hires subcontractors. AIM also opposes legislation (S.1013) that would create civil liability and define workplace bullying.

“The February 7 deadline for Beacon Hill committees to report out bills under the Legislature’s Joint Rule 10 signals the start of a critical period for employers and the issues that affect them,” said John Regan, Executive Vice President of Government Affairs at AIM.

“There will be a flurry of activity between now and the end of the two-year legislative session on July 31. Employers need to pay close attention since important bills often move quickly during this period.”

The independent contractor issue revolves around an overly restrictive statute that leaves Massachusetts on the sidelines of one of the fastest developing sectors of the economy.

One out of every three American workers, from software engineers and researchers to graphic designers, freelance journalists and nannies, today works independently outside the bounds of traditional 9-to-5 employment. The trend includes the so-called sharing economy that provides apps allowing individuals to exchange goods and services ranging from rides to housecleaning.

But Massachusetts' share of that job growth is threatened by a state law that imposes a confusing and complex three-factor test to determine whether a worker is an employee or independent contractor.

On non-compete agreements, AIM has fought relentlessly for several years on behalf the vast majority of Massachusetts employers who wish to preserve the use of non-competes to protect intellectual property. The association supports a compromise that would limit non-competes to one year and give employees the opportunity to consult a lawyer when signing a non-compete, but not require companies that compensate employees at the time they sign non-competes to pay them again during the restricted period.

AIM also supports a group of measures intended to address discrimination and harassment in the workplace. One bill would allow employers to ask previous employers questions about an applicant’s work history (H.1046), while a second would encourage employers to engage in voluntary training regarding non-discrimination (H.1037/H.1047) and third would rewrite a highly confusing and problematic statute that makes adding disciplinary matters to a personnel record difficult (H.1049/S.1044).

The paid family and medical leave and minimum wage initiatives opposed by employers mirror similar measures headed to the statewide ballot in November. A third ballot question would create a constitutional amendment imposing a 4 percentage-point surtax on incomes of more than $1 million for thousands of subchapter-S and other pass-through business in Massachusetts.

AIM President and Chief Executive Officer Richard C. Lord and four other prominent business leaders are challenging the proposed tax amendment in court.

A frenzied conclusion to the 2015-2016 Beacon Hill legislative session produced far-reaching measures on energy and economic-development, but no agreement on restricting the use of non-compete agreements.

A consensus pay-equity bill supported by the business community passed a week earlier and is due to be signed by Governor Charlie Baker today.

Richard C. Lord, President and CEO of AIM, said employers should take encouragement from the fact that the final bills that passed around midnight Sunday largely reflected the moderate approach to business issues taken by the House of Representatives.

“The House and the Baker Administration again showed an understanding of the factors that contribute to business growth and job creation,” Lord said. “We give particular credit to House Speaker Robert DeLeo, who forged meaningful compromises on pay-equity, non-compete agreements and other key issues.”

He also noted that lawmakers and Governor Baker worked responsibly to balance a difficult budget with no tax increases.

The energy bill commits Massachusetts utilities to purchasing up to 30 percent of the state’s electricity from offshore wind generation and hydropower imported from Canada or upstate New York. The final version rejects a troublesome proposal to double the state's minimum requirements for renewable energy and also maintains funding mechanisms for development of natural gas pipelines.

“The bill will raise electricity rates as the commonwealth transitions to non-carbon fuel sources. That said, lawmakers approached the issue in a careful and thoughtful manner that recognizes the need to include a variety of generation sources for electricity,” said Robert Rio, Senior Vice President of Government Affairs at Associated Industries of Massachusetts.

Average electric rates in Massachusetts are the third highest in the nation for industrial ratepayers, and more than twice as high as companies pay in the competitor state of North Carolina.Those costs place employers at a significant disadvantage when competing with businesses located in other areas of the country.

The breakdown of negotiations on non-compete agreements brought a stunning, if temporary, end to a contentious effort by venture capitalists to do away with current law governing non-competes. AIM has waged a protracted battle to defend the vast majority of Massachusetts employers who wish to preserve the use of non-competes, but the association nevertheless negotiated a reasonable compromise measure that passed the House of Representatives.

The House bill would have limited the duration of non-competes to one year and required employers who did not compensate workers at the time they signed a non-compete to pay 50 percent of the worker’s salary during the non-compete period. A separate Senate bill would have limited the term of non-competes to three months and required employers to pay 100 percent of a worker’s salary regardless of existing financial compensation.

The deadlock means that opponents of non-competes will have to return to square one and refile their proposals when the 2017-2018 legislative session begins in January.

“The outcome of negotiations on the use of non-competes is disappointing to the business community, which worked in good faith with the House on a reasonable compromise. AIM continues to believe that non-compete agreements with common-sense limitation protect intellectual property and stimulate investment and innovation in Massachusetts,” said Brad MacDougall, Vice President of Government Affairs at AIM.

The economic development bill includes $500 million in authorized borrowing for the MassWorks infrastructure program, $45 million in capital dollars for brownfields environmental projects and $45 million for equipment for career and technical education, among other measures. The bill also features a new tax deduction intended encourage families to save for college tuition costs.

The pay-equity bill is intended to promote salary transparency, limit upfront questions to job candidates about salary history, and encourage companies to conduct reviews to detect pay disparities. It explicitly recognizes legitimate market forces such as performance and the competitive landscape for certain skills that cause pay differences among employees.

The 19th-century British Prime Minister Benjamin Disraeli defined a statesman as “essentially a practical character” who works “to ascertain the needful, and the beneficial, and the most feasible manner in which affairs are to be carried on.“

Massachusetts House Speaker Robert DeLeo displayed admirable statesmanship and determination in forging a consensus wage-equity bill under which workers will be fairly compensated regardless of gender while employers retain the ability to design competitive pay plans to attract and retain skilled employees. The bill won unanimous approval Saturday and is now on Governor Charlie Baker's desk.

Now, the speaker is putting his statesman’s hat back on in an effort to pass a compromise bill governing the use of non-compete agreements in Massachusetts. His efforts deserve the full-throated support of the employer community.

You know the non-compete issue by now. AIM has fought relentlessly for several years on behalf the vast majority of Massachusetts employers who wish to preserve the use of non-compete agreements to protect intellectual property. Efforts to ban the use of non-competes have been driven by a small group of well-heeled venture capitalists who cannot seem to master the idea that if you don’t like non-competes, just don’t use them.

Speaker DeLeo, as he did with wage equity, reached out to AIM and other business organizations to understand the concerns that employers had with a possible ban on non-competes. He wanted to limit the use of non-competes with low-income workers, teen-agers, interns and other categories of workers without harming companies seeking to prevent the loss of trade secrets worth millions of dollars.

The result was a compromise bill endorsed by the employer community that would limit non-competes to one year and give employees the opportunity to consult a lawyer when signing a non-compete, but not require companies that compensate employees at the time they sign non-competes to pay them again during the restricted period. The bill passed 149-0.

But the state Senate ignored the speaker’s carefully crafted compromise and passed its own bill with Draconian restrictions that would effectively end of the use of the documents in the Bay State. The Senate measure would limit non-compete agreements to three months and require employers to pay the full salary of the former employee during the restricted period. The bill would exempt anyone earning $130,000 or less from non-competes.

The issue now rests with a conference committee that will attempt to hammer out the differences between the two versions.

But the compromise and statesmanship on non-competes has already taken place. We urge the Senate to recognize the balanced compromise woven by Speaker DeLeo and to adopt the House version of the non-compete bill.

And we're not alone. Baker on Saturday announced that he supports the House bill "because he believes it better balances workers' abilities to seek new employment while ensuring cutting edge businesses can protect essential intellectual property."

AIM urges all its members to contact the conference committee and urge them to adopt the House version.

The Massachusetts Senate took a dramatic step backward yesterday on non-compete agreements, passing Draconian restrictions that would effectively end of the use of the documents in the Bay State.

The Senate passed by voice vote a measure that would limit non-compete agreements to three months and require employers to pay the full salary of the former employee during the restricted period. The bill would exempt anyone earning $130,000 or less from non-competes.

The Senate measure stands in marked contrast to a compromise version passed by the House in late June that allows one-year non-competes and not require companies that compensate employees at the time they sign non-competes to pay them again during the restricted period.

Lawmakers will have to reconcile all those differences before the session ends on July 31 if a non-compete bill is to become law.

“Employers support the House bill, period,” said John Regan, Executive Vice President of Government Affairs at AIM.

“House leaders worked with people on all sides of the issue and came up with a reasonable compromise that protects the rights of both employers and workers. The idea that you would now compromise a compromise makes no sense.”

Employers believe selective use of non-competes protects the significant investments that allow their companies to be global leaders in their industries and to create jobs in the commonwealth. The compromise legislation begins to recognize that Massachusetts employers need flexibility and legal options to protect intellectual property.

AIM continues to maintain that there is no evidence that the use of non-compete agreements harms Massachusetts’ position as a globally recognized leader in innovation. In fact, Securities and Exchange Commission (SEC) filings indicate that the well-heeled venture capitalists pushing to limit non-competes use such agreements themselves.

Employers have articulated several provisions that would be required for them to support a bill limiting non-competes:

Minimum one-year duration.

A “garden leave” provision that requires the employer to pay 50% of the employees’ prorated salary during the restricted period, or other mutually-agreed upon compensation.

Maintaining and clarifying the ability of a court to reform or alter non-compete contracts to ensure that both parties are treated fairly.

Those subject to non-compete agreements would have to be given prior notice of the need to sign the agreement, as well as the opportunity to consult with legal counsel.

The non-compete would extend to a second year should an employee unlawfully take property belonging to the employer, as included in the House version.

The Massachusetts House of Representatives voted 149-0 Thursday to approve compromise legislation governing the use of non-compete agreements.

Associated Industries of Massachusetts has opposed efforts to ban or limit the use of non-competes, but has also engaged in productive discussions with House Speaker Robert DeLeo on the issue.

“AIM recognizes and appreciates the approach that Speaker DeLeo has taken in the debate over non-compete agreements,” said John Regan, Executive Vice President of Government Affairs at AIM.

“The speaker recognizes the need to protect business interests at a time when non-competes are a vital part of protecting investments and ideas created by employers of all sizes and from all industries. As the speaker has noted in the past, Massachusetts cannot be an ‘invented here and manufactured elsewhere’ commonwealth.”

The House proposal makes three positive changes from legislation originally advanced by the Legislature’s Joint Committee on Labor & Workforce Development. The changes address some of the major concerns expressed by AIM and other members of the business community in a June 20 meeting with Speaker DeLeo:

Garden Leave: A provision that would have required employers to pay workers half their salary during the restricted period of a non-compete agreement has been modified to recognize “other mutually-agreed upon consideration between the employer and the employee.” That means companies that compensate employees at the time they sign non-competes would not have to pay them again during the restricted period. While AIM would prefer to eliminate the “garden leave” provision entirely, the revision provides some flexibility to employers.

Amending contracts: The compromise legislation would allow courts to reform or alter non-compete contracts to ensure that both parties are treated fairly. Previous language would have forced a court to invalidate a contract in full.

Effective date: The legislation would provide time for businesses to update contracts by moving the effective date from July 1 to October 1, 2016. As previously proposed, the law would not apply retroactively to contracts signed as of October 1, 2016.

AIM has expressed support for several provisions of the revised bill that clearly define the conditions under which non-competes may be used:

Non-compete agreements could be only one year in duration.

Those subject to non-compete agreements would have to be given prior notice of the need to sign the agreement, as well as the opportunity to consult with legal counsel.

The non-compete would extend to a second year should an employee unlawfully take property belonging to the employer.

Amid these improvements, concerns remain. AIM urges the House of Representative to consider several changes:

Stock options: Make stock-option offerings exempt from being directly tied to non-compete agreements since such grants are used for attracting and retaining talent.

Exemptions: Change the criteria under which workers would be exempt from non-competes from the Fair Labor Standards Act to a standard that relies on the minimum wage.

Garden Leave: Make technical changes to underscore the fact that non-compete agreements are often part of broader standardized national or international compensation plans.

Choice of Law Provision: Strike language that sets arbitrary rules for selecting the court where a claim may be brought.

Garden Leave exemption: Create language to allow a non-compete to remain enforceable when an employee receives a severance payment or other long-term compensation.

Independent Contractors: Strike language that defines employee to include independent contractors within the definition of full-time employee.

Damages: Strike language that would preclude an employer from recouping damages or costs associated with a stolen “sales list” if an employee were to leave voluntarily.

AIM continues to maintain that there is no evidence that the use of non-compete agreements harms Massachusetts’ position as as a globally recognized leader in innovation. In fact, Securities and Exchange Commission (SEC) filings indicate that the well-heeled venture capitalists pushing to limit non-competes use such agreements themselves.

Employers believe selective use of non-competes protects the significant investments that allow their companies to be global leaders in their industries and to create jobs in the commonwealth. The compromise legislation begins to recognize that Massachusetts employers need flexibility and legal options to protect intellectual property.

AIM looks forward to working with members of the Legislature to address the changes that remain to be made.

The Massachusetts Legislature’s Joint Committee on Labor and Workforce Development on Monday released a non-compete reform bill containing provisions outlined by House Speaker Robert DeLeo in March.

The measure is the latest iteration of a years-long battle by venture capitalists to ban or limit the use of non-compete agreements in Massachusetts. AIM has so far opposed changes to the non-compete law, believing the non-compete issue is about choice for both individuals and employers who should be free to negotiate contracts of mutual benefit as long as the employee is a part of the process.

AIM supports the following provisions of the Labor and Workforce Development bill:

Non-compete agreements could be only one year in duration.

Those subject to non-compete agreements would have to be given prior notice of the need to sign the agreement, as well as the opportunity to consult with legal counsel.

Extension of the non-compete to a second year should the employee unlawfully take property belonging to the employer.

AIM opposes the following provisions:

Imposition of a so called “garden leave” provision requiring that at least 50 percent compensation for the duration of a non-compete period. As one AIM-member lawyer noted, “This is not a law anywhere in the country. Moreover, most Massachusetts businesses are small and could not afford to protect their investments with this type of provision.”

Creation of multiple opportunities for a plaintiff or a court to void a non-compete contract. It is critical for a business to have confidence that their non-competes will be held up in court.

Non-competes would become invalid for employees who are terminated or laid off. As one western Massachusetts manufacturer noted, “The risk to employer is still alive and well if the terminated employee takes that information and goes to a direct competitor.”

A prohibition against courts reforming a contract, a provision that would make it likely that contracts would be voided. It is a long-standing and common practice for a court to reform an agreement rather than set it aside. As one AIM member noted, “The power and ability to reform a non-compete contract is a bedrock principle in equity. It is the primary way for the courts to make a fair and just ruling on the enforcement of a non-compete agreement. The courts take substantial evidence from the parties on an enforcement action, and thus is in the position to assess same and make a ruling which is ‘customized’ to the situation at hand. This a best practice that has allowed for proper and equitable application of non-compete agreements for over a hundred years”

Arbitrary rules for selecting the court where a claim may be brought.

Exemptions for certain workers for whom a non-compete would be invalid. AIM is concerned that changes announced today to the federal Fair Labor Standards Act will make these exemptions applicable to a broad swath of the work force. One AIM member from Fall River noted, that “In reality, how someone is paid (and how much) has little or nothing to do with what confidential or proprietary business information they may be exposed to. This has a big impact to small businesses.”

AIM has concerns about other sections of the legislation:

The manner in which the proposal captures independent contractors within the definition of full-time employee.

The chance that an employer may be precluded from recouping damages or costs associated with a stolen “sales list” if an employee were to voluntarily leave.

The requirement that a company reveal certain aspects of a specific trade secret through the court and discovery process. The court process and the manner in which trade and other business interests are protected in court should be given further analysis.

The aggressive implementation date of July 1, 2016. Given the significant challenge of changing legal documents, especially given new changes imposed by the defense of trade secret law

“AIM appreciates the approach that Speaker DeLeo has taken in the public policy debate over non-compete agreements,” said John Regan, Executive Vice President of Government Affairs at AIM.

“The Speaker clearly recognizes the need to protect business interests at a time when non-competes are a vital part of protecting investments and ideas created by employers of all sizes and from all industries. As the Speaker has noted in the past, Massachusetts cannot be an ‘invented here and manufactured elsewhere’ commonwealth.”

AIM looks forward to working with members of the Legislature to address these concerns.

Microsoft Founder Bill Gates once said that “The intersection of law, politics and technology is going to force a lot of good thinking.”

Perhaps, but it is also forcing a lot of muddled thinking as state and federal policymakers struggle to define a rapidly evolving economy with traditional laws and regulations. Associated Industries of Massachusetts will today seek to change some of that thinking on two issues that are critical to the commonwealth’s economic future – the ability of employers to protect intellectual property with non-compete agreements and the ability of entrepreneurs to work as independent contractors.

AIM plans to provide testimony on the two issues at a hearing of the Massachusetts Legislature’s Joint Committee on Labor and Workforce Development. The association opposes efforts to ban or limit the use of non-compete agreements and favors changing the law that prevents virtually any individual in Massachusetts from unambiguously passing the legal test to qualify as an independent contractor.

“The 4,500 member employers of AIM believe that government should encourage the research, innovation and investment that make the Massachusetts economy unique. Maintaining non-competes and broadening the definition of independent contractors will ensure that great ideas continue to generate good jobs here in the commonwealth,” said John Regan, Executive Vice President of Government Affairs.

Massachusetts lawmakers last year rejected efforts by a small group of well-heeled venture capitalists to ban the use of non-compete agreements in the commonwealth. AIM believes the non-compete issue is about choice for both individuals and employers, who should be free to negotiate contracts of mutual benefit as long as the employee is a part of the process.

the harm to the employer from non-enforcement outweighs the harm to the employee.

“Non-compete agreements may not be used to curtail ordinary, fair competition or to prevent employees from using their general skills. Massachusetts has a long history of case law that strikes the right balance between employee freedom of mobility and financial incentives with employer interests in protecting intellectual property (IP), trade secrets, confidential information, and goodwill,” says Brad MacDougall, Vice President of Government Affairs at AIM.

The association surveyed its members last year and found that non-competes are used widely in every segment of the Massachusetts economy, including manufacturing, life sciences, medical devices, finance, retail, marketing, publishing, construction, energy, professional services, insurance and health care. A manufacturing company with fewer than 50 employees wrote on the survey that eliminating non-competes “could put us out of business.”

The independent contractor issue revolves around an overly restrictive statute that leaves Massachusetts on the sidelines of one of the fastest developing sectors of the economy.

One out of every three American workers, from software engineers and researchers to graphic designers, freelance journalists and nannies, today works independently outside the bounds of traditional 9-to-5 employment. The trend includes the so-called sharing economy that provides apps allowing individuals to exchange goods and services ranging from rides to housecleaning.

But Massachusetts' share of that job growth is threatened by a state law that imposes a confusing and complex three-factor test to determine whether a worker is an employee or independent contractor.

Employees must currently meet three requirements to be considered an independent contractor:

The individual is free from control and direction in connection with the performance of the service, both under his/her contract for the performance of service and in fact; and

The service is performed outside the usual course of the business of the employer; and,

The individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.

An advisory from the Massachusetts attorney general in 2004 concluded that “the new law is so broad in its definition of employee that virtually every occupation, individual entrepreneur and every employer, including the public sector, have been affected, putting Massachusetts at odds with every other state in the country.”

Simply replacing the word “and” with “or” after Section 2 would bring Massachusetts into alignment with the 20-factor IRS test for determining employment versus contractor status, and validate normal and accepted employment practices in many sectors of the economy.

It’s a modest change that would help thousands of legitimate Massachusetts independent contractors who choose to manage and operate their own business and earn a living outside a traditional employer-employee relationship.

Both the non-compete and independent contractor issues underscore the fact that Massachusetts must regulate a 21st century economy with 2st century laws.